Avoiding Lifestyle Inflation

I can still remember how it felt to get my first real paycheck at my first real job after college. It came in the mail, and I stood by the mailbox at my old apartment building ripping open the envelope as soon as I realized what it was and holding that check in my hand. It was more money than I had ever seen at once in my life.

I splurged with it – and with the next check, too. I felt like I was celebrating actually becoming an adult with a real job and a real career path.

Before long, though, I had established a pattern of normalcy that involved spending quite a bit of money. The ramen noodles I had eaten in college were no longer good enough for me. Eating the $3 special at the Chinese restaurant near where I lived no longer satisfied my desires. Used video games from three years ago were quickly replaced by the newest releases. My old shirts, accumulated over the years of college, quickly vanished and were replaced by crisp new clothes.

I was making good money. I had to live like it, right?

I established a pattern of spending enough so that I was living paycheck to paycheck. I was buying far more stuff than I actually needed, but it was all necessary for the standard of living that I had adopted.

Then my student loans went off of forbearance.

Then I needed to buy a vehicle and car payments began.

Then my wife and I had a first child and the costs of diapers, formula, and child care began.

The problem was that my lifestyle had inflated beyond what my paycheck left me with after these expenses, and it led us almost into disaster.

It was a long and difficult path to recovery from this situation, but I know now that it would have been far better off had I never allowed my lifestyle to inflate in the first place.

Over the past several years, we trimmed our lifestyle down so much that there has often been temptation to enjoy some degree of lifestyle inflation once again. For the most part, we’ve avoided that temptation. Here’s how we’ve done it.

We’re conscious of lifestyle inflation. It’s a phenomenon we’re aware of and one that we talk about regularly. We watch for examples of where our regular spending has gone up and we talk those examples to death, usually finding that we’re better off keeping our spending low.

We stick with the things we enjoy. If we have fun going on a family walk in the park, why do we need to suddenly be taking our kids to FunLand and drop $20 or buy them a bunch of stuff to play with at home? If we enjoy our home-cooked meals around the dinner table made with simple and tasty ingredients, why do we need to start going out all the time and dropping $50 per meal? If we love playing an old familiar board game with our friends after a potluck dinner, why do we need to add expensive options to our social schedule? If the eight year old car we bought off of Craigslist serves our needs quite well, why buy a new one?

We splurge with enjoyable activities, not things. I mean this with all seriousness: my biggest splurge nowadays is a free uninterrupted hour or two of reading or playing a game. If I find that my daily tasks are done and I have an hour to crack open a novel or play a game of League of Legends or something, I really feel like it’s a splurge. Time is truly the valuable commodity in my life.

Beyond that, when we do open up our wallets, it’s usually for a special activity, usually our summer vacation. I enjoy going to Gencon each summer, my wife often visits her family in Seattle, and we usually take a family trip, too. Those are our biggest annual splurges.

We keep a lot of options on the table. One thing I’ve found is that once you start inflating your lifestyle, you stop really looking at certain options. Usually, free and inexpensive things are immediately off the table because, after all, you’re above that, right?

When we’re looking for something to do, we don’t start with movie listings or expensive events. We look at things like our local community calendar or the parks and recreation schedule. We look around our house at the multitude of things to do at home, from board games and art projects to books and home improvement tasks. There are more cheap and free things to do than we ever have time to get done, so why spend a lot of money on expensive things?

We maintain friendships with people who have similar values. Our closest friends have (more or less) the same values on lifestyle inflation that we do. All of us make a solid income, but our social events together are usually potluck dinners with board games afterward.

Most of the rest of our social circle consists of people that we’ve come to know thanks to free activities through our local parks and recreation department, mostly parents of children of similar age as our own.

We also live in a neighborhood where most of the people seem to have roughly the same standard of living that we do. Yeah, a few people have nice cars, but of the families nearest us, I can quickly see a pair of used vans and an ancient compact car. None of the houses are particularly nicer than ours, either.

Simply put, we don’t have the social pressure to engage in lifestyle inflation, and we’re happy to keep it that way.

A lot of our income is automatically transferred away before it reaches our hands. We pay almost all of our bills automatically. Beyond that, we also transfer away money for each child’s college savings plan, savings accounts for many of our future goals, and accounts for irregular bills like property taxes. We simply don’t leave behind enough for us to inflate our lifestyles very much.

The biggest item to me is my friends. When I lived in the city, seeing friends meant going out to eat, going to a music festival, or throwing a fancy party with pricey booze and expensive snacks. Now that I’ve moved to a small town with lots of frugality-minded residents, seeing friends involves potluck suppers with inexpensive home-made (often home-grown) food, home-brewed beer and cider or wine from the discount rack, hikes, camping trips, and jam sessions.

Even if I could afford to keep doing the expensive stuff (which I can’t), I wouldn’t have anybody to go with.

None of our local friends buy new cars or have smartphones or other new electronic gadgets. Most of us get our clothes at Goodwill. So for me, avoiding lifestyle inflation helps me fit in. It’s great.

Technology is a killer. I had a tube TV until about 3 years ago, and it was a source of ridicule for not “upgrading” to an HDTV. When you’re watching South Park or old movies, HD is pretty much irrelevant.

Lifestyle creep is an ongoing battle. My best strategy is that I’ve used the past five years of raises from my job as a way to increase 401K contributions since we have a generous employee match. Then, during the year I will continue to increase the amount even by $5-25 a quarter if possible. Removing ANY money from cashflow by automatic deductions/investments/payments is one very effective tactic.

(And before anyone starts the “lucky to get a raise” discussion, we’re talking about some marginal nominal increases here…)

My wife and I have instituted a policy of having to vouch for any non-necessity we buy. Even if we’re at the grocery store and we want something we don’t need that we’ll still eat. It’s turned into a competition, where neither of us wants to lose to the other by spending more. I’m almost worried neither of us will strike first this year! :)

@ #4 Johanna:
I think the point of Trent’s article was to not live outside your means by adding new expenses to your lifestyle to accomodate a higher income. He’s posted many times about the benefits of paying for improved value.

This would have been a much better – and more credible – post if it had been something like “How to keeep your lifestyle from inflating beyond what you can afford” rather than “Lifestyle inflation is bad bad bad!”

#2 Jackowick – LOL. Our only TV is still our 20 year old relatively small tube portable. And, we do admit to watching an hour or more of TV almost every day. There are a few shows where we now can’t see what’s going on at the edges as production accommodates the new rectangular screen format, and occasionally one of us starts thinking we ought to replace it, but so far we haven’t gotten to the point of even researching options. Looks like it’s going to be with us until it dies.

As a college student, I was getting by with $150 a month after rent and utilities.
After I got the job, I put $200+rent in what I called a “spending account” in local bank and the rest in a “saving account” in BoA.

I pretended like the money in the saving account didn’t exist.
I opted out of monthly statement, via mail and via email, so I won’t be reminded of the money I have.
At the end of each year, I check the balance on the BoA account.

Until last year, I used the balance on saving account to pay off student loan.
This year, I am using it to open IRA and some investment account.

I love the TV stories. About 15 years ago when I got divorced, I ended up with an old TV that had belonged to my ex-husband’s grandmother before she died. I hated that TV with a passion, but it worked fine (however, no remote), and there was no way I was going to get a new TV until it died. I cheered when it stopped working several years later, but it served me well until then. The story still cracks me up.

So true. I wish I had followed the advice I was given when I got out of college: live like you have been living and bank the rest. Once you get used to an inflated lifestyle it is hard to go back. If you can prevent yourself from getting there in the first place it will save you a lot of money!

I think one PF book I read by Larry Wicket? (something like that) that basically said if you have poor/low income earning friends to dump them from your life and make friends with rich people, because people tend to earn what the average of their 5 best friends earn. It could have been Dave Ramsey now that I think about it, the two authors read a lot alike.

There’s a lot wrong with that sentiment to begin with, but I tend to agree that if I spend time/vacation with my lower income friends I spend a LOT less than when I am with my rich friends. But I have comparable fun either way, which is the important thing.

The best strategy I’ve employed is to always put some portion – if not all – of each raise I’ve received and put it toward my 401k deductions. As time goes on and your income rises, this becomes easier, of course.

A few years ago, I was living above my means because of my friends. They always wanted to go out to eat, go to concerts, etc. It got to a point where I had to start to politely decline invitations and when I would go out to eat, only order an appetizer. They understood and now, many of them are realizing they too were living above their means. Now we stay in and play board games or light a campfire when the weather is nice.

I think you have to be careful and aware of lifestyle inflation but that it’s not always a bad thing.

I graduated college almost exactly 1 year ago. Do I spend a lot more than I did in college? Heck yes. I too remember my first paycheck. The day I received it was the day I moved in with a roommate and that covered my first month’s rent and security deposit. Then I had to buy a bed. Odds and ends. Professional clothing.

Sometimes I regret that I spent a lot at first (especially when I got laid off) but I reigned it in and still saved $10k this past year. I found a balance, and I think that’s key to a good lifestyle. And within the next year I’ll be facing more lifestyle inflation by moving into a place with no roommate. And that comes with a whole new set of purchases. But some sort of this inflation is necessary, especially right after college.

“This would have been a much better – and more credible – post if it had been something like “How to keeep your lifestyle from inflating beyond what you can afford” rather than “Lifestyle inflation is bad bad bad!”

Truth.
You shouldn’t equivocate to the point where your writing becomes meaningless. However, a lot of situations aren’t so cut and dried. The writers at GRS strike a nice balance with these kinds of topics.

I am so guilty of this. I plan my paychecks out before they are in my hand. I am going to be entering a new line of work after grad school and am already planning what to do with my raise. I never even gave those plans a second thought.We need to get back to basics a bit and start spending before it is in our hands.

I agree 100%. It is easy to spend like a drunken sailor when you get that first big paycheck. I’m sure most of us did.
When you’re older, it’s a bit easier to rein in the lifestyle choice because we have to think of the future more now. Or maybe not… So many people still have huge debts.

“The ramen noodles I had eaten in college were no longer good enough for me.”
– Well, good, because they’re REALLY unhealthy and weren’t healthy eating them when you were poor.

“My old shirts, accumulated over the years of college, quickly vanished and were replaced by crisp new clothes.”

– This is ridiculous. It’s not lifestyle inflation to have to change your wardrobe from ‘college casual’ to ‘crisp new clothes’ for a working environment.

A better example of lifestyle inflation would have been talking about how Trent used it to upgrade/choose his new car, or the size of their apartment/house, or heck, where he ate INSTEAD of the $3 dollar Chinese special. Otherwise it’s not lifestyle inflation, it’s just disatisfaction.

And does your wife work too? Because maybe she needs new clothes to make her feel professional after what the last baby did to her body? Nothing says “don’t give me a promotion” better than ill-fitting and dated clothing. And maybe she needs a meal or two out to escape the drudgery of cooking for people who don’t truly appreciate it – especially after a full day of work? And I bet what she’s cooking isn’t two minute ramen,or maybe it is, but you’ll end up paying for it later.

In a nutshell, you use 60% of your income towards committed expenses, and then 10% into retirement, 10% into short-term savings, 10% into long-term savings, and 10% into Fun money.

I’m currently at 61/9/6/5/4 because there’s 15% towards debt repayment. It’s not the perfect 60/10/10/10/10 model, but it’s close enough! I slowly work towards it over time.

The wonderful thing is that you still get to spend more dollars on things as your income increases, but the proportion of spending always stays the same. Increased spending without the out-of-control lifestyle inflation!

I think several of the regular critics should be writing their own personal finance blogs instead of wasting time complaining about this one. I happen to enjoy this one, but it is a downer to know that there will always be several vicious attacks on whatever the subject might be.

Trent, great points here, completely agree with you. Four and a half years ago, I started working overseas as an engineering manager on an expatriate package with housing, relocation, car, utilities, everything provided. I was very lucky to get it, and it has a lot of challenges, but it’s paid off well….I SAVE $100,000 USD a year.

I have seen many many expats go off the rails with the windfall – weekend trips at $400 per night hotels, hiring “Staff” (nanny, cook, cleaner, driver, gardener – sometimes all of them), dinner our every night, gifts, whatever. They’re not losing money in the end but certainly after a 3 year assignment they’re heading home with tens of thousands less than they could have.

So the point is, when you do get a windfall or an opportunity, make the most of it. Don’t get me wrong, my family goes out for dinner, takes trips (Australia and Europe last year), we just keep things in perspective.

I fell for lifestyle inflation after the first job and it’s one of the things I’m trying to warn my kids about. I had a great new salary and everyone said I could easily make the payments and those friendly sales folks with the kind smiles and easy laughs wouldn’t lie to me, would they? Two new cars for me and the wife, new house instead of an apartment, and the real indicator of lifestyle inflation, the slow but constant build-up of debt being proof you’re spending more than you make and living paycheck to paycheck. Like many bad habits, it’s often better not to get started with it.

On the flip side, there’s nothing wrong with upgrading your lifestyle a bit as long as you can afford it and you are meeting your financial goals. I mean come on, you probably just got a bump up with that first job of two or more times the amount of money you’re used to living on. I would hope that even if you’re being conservative your lifestyle should improve. Being conscious of lifestyle inflation should allow you to be better focused on getting value for your money, spending less than you earn, and building your future while living your life. It shouldn’t mean feeling like your cutting a vein if you buy some new clothes, a newer vehicle, etc. provided you plan for it and can afford it and are meeting your other financial goals.

i want to thank you for this i think this is part of what got me ito trouble yrs ago while in college and long after. took yrs to get it straightened out. i have now moved to a less expensive place, and though i just had to buy a car and have payments i just had 40 left from my pay checks and that made me happy because if i lived where i was i would still be 30 dollars in the hole. i have decided to use any and all extra money for the next few monthes to pay off the car early.

I grew up on a subsistance farm, without electricity, no indoor plumbing, no telephone, vehicles were junkyard rescued. I welcomed lifestyle inflation, I’m sure there are many who would enjoy a middle class lifestyle once they have the resources.

Lol about the tvs! My husband and I were still using the tv that I’d gotten (second hand) from a friend in 1997! Then, when my aunts purchased a new tv, they gave us their old tube one. So we now have a larger screen tv in the living room with a consistent picture, and I have a tv in the basement in front of the treadmill to use when I work out. Both are tube tvs – we’re trying to see how long we can go without getting a new one.

And @lurker carl – very well put. I understand the concept of lifestyle inflation, but sometimes, people are just relieved to be able to upgrade to a more comfortable lifestyle. For me, it was a boon to be able to buy new clothes. I’ve recently taken a new professional job, and as I’ve been a SAHM for the last year and a half and lost about 30 pounds, I don’t have any acceptable clothing. I *could* hunt through Goodwill, but I have the option of purchasing a few new, quality pieces of clothing at a reasonable price, and I can afford to do so without compromising my financial goals. This wasn’t always the case for me, and I’m pleased to be able to have this choice.

I’m patiently waiting for my tube TV to die a quiet death so that I can buy a new one. I’m a firm believer in wearing things out: dryers, stoves, refrigerators, etc. Every time I think about just going out and buying one (because I can definitely afford it), I talk myself out of it. I’m with the TV until it dies and I know it will last a long, long time because I want it to die. :)

Thank-you for this article!! I wish I had read and heeded it when I graduated from college. I graduated with 50K worth of student loans and by the time I wised up to finances I was 78K in debt. I had drastically increased my spending on my lifestyle. It took me three years to pay off every dime of the 78K, But I learned my lessons and I have maintained a frugal lifestyle.
I have had a very hard time finding like minded frugal lifestyle people.
PS. I gave away my television as I found that the more I watched it the more money I spent.

#22 Kenia has the right idea. A little lifestyle inflation is okay, as long as you keep the percentage you’re spending way below the level you make. I would have had fewer problems with the article if the examples had been more sensical (I wouldn’t call eating healthier and buying a reasonable professional wardrobe crazy lifestyle inflations.)

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